Profit optimization

ABSTRACT

Profit optimization methods and systems for a supply chain are described. An implementation of the technique includes determining the initial cost of components required to manufacture a product, dynamically determining the cost for substitution of at least one product component, dynamically determining the location of at least one substitute component, and manufacturing the product for the lowest cost based on the results of the cost of substittuion and substitute component location determinations. At least one of the cost of substitute components and the component locations may be determined at or near the time of manufacture.

TECHNICAL FIELD

This invention relates to optimizing profits in a supply chain, and moreparticularly to methods and systems for applying adaptive pricingtechniques to product manufacturing.

BACKGROUND

A supply chain is a network of facilities and distribution options thatperforms the functions of procuring materials, transforming thematerials into semi-finished and finished products, and distributing thefinished products to customers. Supply chain management (SCM) is abusiness policy that aims to improve all activities along the supplychain. SCM results in improved integration and visibility withinindividual companies, as well as flexibility across supply and demandenvironments.

Product manufacturers strive to maximize profits by charging thegreatest price possible for the product, and by optimally matching thesupply of products to the demand. However, real world issues oftencombine to present problems that must be overcome in order to maximizeprofits. For example, certain types of products, such as computers andfashion items, lose value over time. In addition, supply chain capacityis typically flexible only within certain bounds. Further, customer orproduct segmentation potential varies by industry. Moreover, amanufacturers' share of variable costs is higher than that of serviceindustries, product demand may be variable, and contracts may limitprice adjustments.

SAP AG and SAP America, Inc. provide supply chain management solutionsfor product manufacturers to help them reach their goals. Some of thesolutions are based on the mySAP.com e-business platform (seewww.sap.com for further information). One of the building blocks of thee-business platform is the SAP R/3 component that provides enterpriseresource planning functionality. The SAP R/3 product includes a WebApplication Server (“Web AS”), an R/3 core, and various R/3 extensions.

The SCM Extensions of R/3 deal with various planning, coordination,execution, and optimization issues that are associated with a supplychain. It would be beneficial to provide a web-based or on-line systemthat optimizes the alignment of variable customer demand and existingsupply capabilities to optimize profits.

SUMMARY

Profit optimization methods, articles and systems for a supply chain anda demand chain are presented. An implementation of the techniqueincludes determining the initial cost of components required tomanufacture a product, dynamically determining the cost for substitutionof at least one product component, dynamically determining the locationof at least one substitute component, and manufacturing the product forthe lowest cost based on the results of the cost of substitution andsubstitute component location determinations. At least one of the costof substitute components and the component locations may be determinedat or near the time of manufacture.

In another implementation, the method includes defining a set ofmanufacturing rules based on customer segments, allocating criticalproduct components according to preferred customer segments, allocatingmanufacturing capacity according to the preferred customer segments, andmanufacturing the product. The method may include allocating the productcomponents and manufacturing capacity according to a feasibilityanalysis.

In yet another implementation, the technique includes monitoring productdemand and allocation reservations for product components, comparing theproduct demand and component allocation reservations with demandforecasts at predetermined intervals, dynamically assigning componentallocations for preferred customer segments according to a comparison ofthe forecasted and monitored demand, and manufacturing the product forthe preferred customer segments before manufacturing the product forother customer segments.

This implementation may include one or more of the following features.Preferred customer segments may be determined according to predefinedrules. Monitoring of product demand and allocation reservations may beconducted in regular intervals. A user may be alerted when a componentallocation is changed.

Another profit optimization method includes dynamically monitoringproduct demand and component allocation reservations, comparing themonitored product demand and component allocation reservations to aforecasted demand, offering customers at least one less expensivesubstitute component of the product in place of a requested component,and manufacturing the product for a first price if the substitutecomponent is accepted, or manufacturing the product for a second, higherprice if the substitute component is not accepted.

This profit optimization method may include one or more of the followingfeatures. The Price changes may be imposed in fixed increments. Pricechanges may be determined according to price sensitivity functions. Atleast one customer offer may include an optimal price based on a priceelasticity value and cannibalization effects.

Yet another profit optimization technique includes determining a productmanufacturing cost value, comparing the current price of the product tothe cost value and calculating a contribution margin, comparing thecontribution margin to a desired target range for a particular customersegment, and adjusting at least one of the product price and a productconfiguration if the contribution margin is outside the target range.The product manufacturing cost value may include at least one of anassembly cost, available components with known purchase cost, locationsubstitution cost, substitute component costs, and urgent missingsupplies cost. The product price may be increased if the contributionmargin is below the target range. The product manufacturing cost valuemay be updated on a regular basis.

A further implementation of a profit optimization technique includesdetermining a contribution margin for each product order, calculatingprices for different product configurations such that product demandwill be met for preferred customer segments, presenting differentproduct configurations at the calculated prices to customers, andmanufacturing the products selected by the customers.

This implementation may include one or more of the following features.The different product configurations and prices may include at least oneof the original product configuration, a plurality of differentcomponent substitutions, and lead time considerations.

In yet another implementation, a profit optimizing method includesdetermining the margin amount of an original customer product order,identifying at least one potential bundled product package containingmore than the requested product order that would contribute to overallprofits, generating a probability value equal to the likelihood that thecustomer would accept a bundled product package at a special price, andoffering at least one bundled product package at the special price tothe customer if the probability value is greater than a predeterminedvalue.

This implementation may include one or more of the following features.The special price may be a discount price that is determined accordingto a pricing and discount strategy. The pricing and discount strategymay include deriving at least a portion of an order-specific price of aproduct bundle offering using customer price elasticity functions.Special discount prices may be offered for at least one specific productbundle depending on the price elasticity of the additional productoffering. At least one potential bundled product package may be offeredthat would optimally contribute to overall profits.

The above techniques may all be embodied in an article comprising acomputer-readable medium that stores executable instructions for causinga computer system to operate according to the invention as describedherein. Moreover, the techniques could all be utilized in a system thatmay include at least one database storage unit and at least oneprocessor coupled to the storage unit, wherein the processor is operableto operate according to the invention as described herein.

A manufacturer can benefit from utilizing the profit optimizationtechniques according to the invention by moving from a cost-based to aprofit-based supply chain decision-making model. In particular, amanufacturer can use the disclosed techniques to analyze monetaryimpacts of decision choices on profit. The analytic capabilities allowthe manufacturer to determine the cost and the profit of variousresource utilization choices, and certain price differentiation choicesmay become apparent that allow higher average profitability of goods.The techniques also determine how best to use scarce product componentresources to achieve maximal profit, and how to get the best possibleprice from customers. In an implementation, a manufacturer can use pricesensitivities to determine optimum prices. Further, the techniquespermit the valuation of cross sensitivities and cannibalization effectsbetween different products of the same product family, between differentproduct families, and between a company and its competitors.

The details of one or more embodiments of the invention are set forth inthe accompanying drawings and the description below. Other features,objects, and advantages of the invention will be apparent from thedescription and drawings, and from the claims.

DESCRIPTION OF DRAWINGS

FIG. 1 is a simplified block diagram illustrating the building blocksused for optimizing profit.

FIG. 2A is a simplified block diagram illustrating theinterrelationships between operations in an activity-based managementand supply chain performance management process.

FIGS. 2B to 2E are graphs to illustrate the concept of adaptive pricingin the value life cycle of a product.

FIG. 3 is a simplified block diagram of an implementation of a systemfor optimizing profit for a manufacturing supply chain according to theinvention.

FIG. 4 is a flowchart of an implementation of a profit optimizationmethod.

FIG. 5 illustrates a method for optimizing profit based on a dynamicprioritization of product components.

FIG. 6 illustrates a method for optimizing profit based on a dynamicprice-driven model of demand.

FIG. 7 illustrates a profit optimization method wherein component costsare considered during a profitable-to-promise check.

FIG. 8 illustrates a profit optimization method wherein a product priceis determined during the profitable-to-promise check

FIG. 9 illustrates a profit optimization method wherein spot bundlepricing is offered to customers.

Like reference symbols in the various drawings indicate like elements.

DETAILED DESCRIPTION

The profit optimization techniques described herein function to alignvariable customer demand and existing supply capabilities. It has beenrecognized that mismatches of demand and supply are not strictly aSupply Chain Management (SCM) problem or a strict product pricingproblem. The profit optimization techniques described below useanalytical information about cost of supply and benefit of revenue as abasis for profit-based decision-making support. The techniques extendrevenue management approaches (wherein the optimal pricing of existinggoods takes into account customer buying behavior) and SCM capabilities(the guaranteed and cost-optimized supply of goods to within certainmanufacturing and distribution constraints) in a comprehensive manner.In particular, the profit optimization techniques introduce adaptivepricing techniques into a manufacturing environment.

FIG. 1 is a simplified block diagram 10 to illustrate the buildingblocks of the technique for optimizing profit. An analytical foundation20 includes a measure builder 21 which is capable of analyzingperformance metrics, at least one reporting engine 22, a planning andsimulation engine 23, an activity based costing application 24, acustomer segmentation application 25 and price elasticity determinationapplication 26. These analytical applications gather any requiredoperational data from a data warehouse 27, although some other database,such as a manufacturer's proprietary database, could be utilized. Thedata warehouse typically contains mainly historical data, such asaverage sales price for a product, customer discount information,various alternate product configurations and price variations, and thelike. Also included is an operational management layer 30 havingtactical and operational profit optimization applications that may beindustry specific and/or process specific. The operational managementlayer may include an adaptive pricing engine 32 (to provide price-drivendemand and supply matching), a campaign optimization engine 34 (tofactor in promotion pricing), and a profitable-to-promise engine 36 (tofactor in spot pricing). Lastly, a strategy management layer 40 includesstrategic profit optimization applications (which may be industry orprocess specific) such as an investment decision support engine 42 and astrategic pricing engine 44 (list pricing).

All of the profit optimization applications utilize analytical data,which may be generated by analytical Supply Chain Management (SCM)applications, analytical Customer Relationship Management (CRM)applications, and Financial Analytics applications currently availablefrom SAP AG and SAP America, Inc. A significant part of profitoptimization is the ability to determine the cost of manufacturingproducts in an adaptive supply chain network because the cost ofproduction changes as the state of the supply chain varies. It is thusnecessary not only to determine the cost of resources, such asmaterials, machines and/or human resources, but it is important to alsodetermine the full cost of production processes.

FIG. 2A is a simplified block diagram 50 illustrating theinterrelationships between operations in an activity-based managementand supply chain performance management process. The horizontal blockswithin oval 59 pertain to manufacturing supply chain performance.Measures 52 link performance objectives 51 to the activities orprocesses 53 that are taking place. The vertical blocks within oval 58concern cost analysis considerations for the product. Cost objectives 54in view of activity cost assignments 55 influence the activities orprocesses 53, and the available resources 56 and resource costassignment considerations 57 also influence the activities or processes53. The performance and cost consideration ovals 58 and 59 intersect at,and drive, the activities and processes 53 pertaining to the manufactureof a product. In general, manufacturers typically only considerperformance goals (oval 59) or only consider costs (oval 58) whenmanufacturing a product. The techniques described herein marryconsiderations from both realms to permit a manufacturing company todetermine the best combination of factors to use to obtain optimalresults (optimal profits). The process 50 could be presented as anonline analytical processing technique to permit a company to determinethe best mix of assignments of resource cost to activities or processes,as well as the activity cost assignments to cost objects. Such a supplychain performance management system is capable of evaluating keyperformance indicators for processes along the supply chain input fordecision making in profit optimization applications. With bothinstruments and the content of supply chain processes based on a supplychain operations model or some other company-customized supply chainprocess model, a company is capable of determining product andproduction cost in an adaptively changing supply chain network.

FIGS. 2B to 2E are graphs to illustrate the concept of adaptive pricingin the value life cycle of a product. FIG. 2B includes a value to timegraph 60 and an associated product volume to price graph 62. The graph60 shows first market entry 61 of the product wherein the product has ahigh value, and the graph 62 shows a sales volume and price point 63indicating that the optimal price point in this example is where thevolume is quite low and the product price is fairly high. FIG. 2Cillustrates the same value to time graph 60 at a point 64 wherein thefirst competitor enters the market. In this case the product value islower, and as shown in graph 62 of FIG. 2C at point 65 the optimal pricehas been lowered and the sales volume is higher. The graph 60 of FIG. 2Dillustrates the product life cycle wherein many competitors have enteredthe market, and at point 66 the product value has diminished.Consequently, as shown in graph 62, at point 67, the product price hasbeen reduced again and the sales volume has increased. The graph 60 ofFIG. 2E shows that at some later time at point 68 the market issaturated and the product value is low so that the product price, asshown in graph 62, has been lowered again. At this time, however, thesales volume has not increased and may even decrease so that the valueof manufacturing this product has diminished. Thus, FIGS. 2B-2Eillustrate how adaptive pricing in the value life cycle of a product canbe used to increase or maintain profits. In particular, a manufactureradjusts the price of a product by accepting different price elasticityfunctions at different phases of the product life cycle to increase orat least maintain profits.

FIG. 3 is a simplified block diagram of an implementation of acomputerized or on-line system 80 for optimizing profit for amanufacturing supply chain. A programmable computer or server 82 may beconfigured to run one or more application programs to process data andprovide results in response to requests from client computers 83, 84,85, 86 and 87. The server 82 may be connected to a manufacturing supplychain monitor device 88, a database 90 and a data storage unit 92. Thecomputer or server 82 and the client computers 83-87 may be any generalpurpose programmable computer, such as IBM-type personal computers orApple-type computers. Alternately, the client computers may be any typeof portable electronic data device capable of sending and receivingdata, such as a personal digital assistant (PDA). The computer or server82, client computers 83-87, database 90, and data storage unit 92 mayall be in different locations, and may communicate via a networkconnection, via the internet 94 and/or over wireless connections orother communication links. Authorized manufacturing employees canutilize client computers to access the server 82 over direct or wirelessconnections via the internet 94, or by direct or wireless networkconnections, as shown. The server 82 may contain various applicationprograms, which are utilized by the authorized employees to determinehow best to optimize profits under various circumstances and utilizingvarious techniques which are described in detail below.

In an implementation, a profitable-to-promise application extends theavailable-to-promise (ATP) capabilities of a supply chain by consideringthe initial cost of components required to manufacture a product, aswell as dynamically considering the cost for substitution of componentsor locations where components are drawn from. In particular, the cost ofsubstitution of components or products, and their locations, aredetermined at or close to the time of manufacture. Such timelyinformation permits accurate determinations to be made so that theproduct can be manufactured and sold at a profitable margin.

There are different levels of implementation and sophistication of sucha profitable-to-promise solution. The various levels and aspects arelisted and described below in order of increasing complexity.

In an implementation, profitability is ensured by usingavailable-to-promise rules (ATP rules) defined on the basis of customersegments. Material components and capacities are allocated specificallyto preferred customer segments such as high value customer segments. TheATP rules ensure that expensive service or product or locationsubstitutions are only taken into account for high value customersduring an ATP check. The ATP check is an initial analysis of availableproducts and their locations to determine the feasibility of varioussubstitution possibilities. A profit-oriented ATP check may be made withthe existing SAP APO product, but it does not take into account costinginformation.

FIG. 4 is a flowchart 100 of an implementation of a profit optimizationmethod. Rules to follow for profitability concerning product componentsand manufacturing capacity are defined 102 based on the customersegments. The customer segmentation application 25 may be used to obtaincustomer segmentation data. Critical components needed to manufacturethe product are then allocated 104 to the high-value or preferredcustomer segments, and capacity is allocated 106 to these customersegments. The product is then manufactured 108. Manufacture of a productin this manner ensures that profitability goals are achieved.

Another implementation keeps cost low for product and component locationsubstitution in less profitable customer segments. In particular, FIG. 5illustrates a method 150 for optimizing profit based on a dynamicprioritization of product components.

The demand and allocation reservations for products and components aremonitored 154 continuously and, in predetermined intervals such as daysor hours, compared 156 with the demand forecast. Under the assumptionthat the forecasted demand leads only to inevitable product and locationsubstitutions, a deviation from the forecasted demand patterns wouldresult in higher cost. The assignments of preferred customer segments tocertain prioritized material allocations are dynamically changed 156according to the comparison of forecasted and monitored demand. Theproduct is then manufactured 158 for preferred customer segments beforemanufacturing for other customer segments. This ensures that the highvalued or preferred customer groups will receive the requested materialin time, while lower priority groups (customer segments with littleexpected profit) have to draw on material allocations or components atlater periods, or are rejected if no substitutions are available. (Thepreferred customer segments may be identified according to therespective rules defined as pointed out above for profit-orientedATP-checks).

In order for the dynamic prioritization of product components techniqueto operate successfully, it is necessary to monitor the consumption ofallocation in a given period. This may be done on a component level inthe ATP, or such information can be stored in a data warehouse 27 orother database. A monitor (monitor agent) must be implemented capable ofcalculating the expected consumption rate, or capable of triggering theadjustment of selection values based on remaining component allocationlevels which depends on how consumption rates are forecasted. Forexample, if the consumption rate is a linear function, then the expectedconsumption rate could be calculated by average techniques or linearregression. In addition, this monitor must determine new selectionpriorities based on the above information in regular time intervals. Thenew set of selection priorities will then avoid certain substitutions tolargely consumed location products, or consequently substitute someproducts for certain customer segments. For example, consider thesituation where components X, Y and Z are initially prioritized asfirst, second and third, respectively, out of eight components. Themanufacturer is running low on component X, and component Z has not beenselling well. In order to force the system to substitute component Zwhen component X reaches a very low level, the priority of component Ycan be changed to a much lower priority such as “fifth” and the priorityof component Z could be changed to second. In order for such a techniqueto be successful, current sales information is required.

There are several case specific issues that need to be considered inorder to achieve the goals of dynamic prioritization of products. Theconsiderations include where the needed consumption information isstored; how the selection priorities are determined; which products areinvolved in the dynamic (or adaptive) prioritization of components; andwhich authorization concepts are necessary and/or suitable for changingassignments of customer segments to allocations (such as alerting auser) and suggesting new priorities with approval and possiblealteration. A suitable interface, such as an intuitive computer display,can be presented so that a user can interact with the system to simulatehow different priority choices would affect the outcome. Suchsimulations may be run only for “high value” or expensive products, suchthat this dynamic strategy may be applied only where a manufacturerwould expect a good return.

Another profit optimization implementation keeps requested demand inline with available supply at the best prices achievable (to ensure thehighest profit). In particular, FIG. 6 illustrates a method 200 foroptimizing profit based on a dynamic price-driven model of demand.

The demand and allocation reservations for products and components aremonitored 202 continuously and, in regular intervals such as days orhours, compared 204 with the demand forecast. Rather than adjusting theallocation of customer segments to material allocations, the price ofcomponents or characteristics is used as an instrument to steer demandaway from strongly requested materials towards better availablematerials. Thus, customers are offered 206 a less expensive substitutecomponent or components of the product in place of a requestedcomponent. If the customer accepts 208 the offer, then the product ismanufactured 210 for a first price. If the customer does not accept theoffered substitute component, then the product is manufactured 212 withthe desired component for a second, higher price. Thus, if inventory ofa particular component A is low but inventory of component B is high,the manufacturer may raise the cost of A and/or lower the cost of B toshift demand. Such a technique reduces the cost of substitutions, or ifthe customer insists on the desired component choice, increases therevenue for highly demanded products and/or components. In order forsuch a technique to work, the system must dynamically monitor theprogress of product demand and the inventory of component parts so thatprices for components can be adjusted in a timely manner.

Consequently, forecasts and actual demands for product components arecompared and lead to price changes of components. These price changesmay be imposed in fixed increments. Alternately, the optimal pricechanges (and thus the optimal new prices) could be determined accordingto price sensitivity functions using an adaptive pricing engine. Thisprofit optimization application therefore limits or controls costs forspecific products or configurations, and adapts the revenue model to thecurrent situation.

In order for this dynamic price-driven technique to be successful, amanufacturer must be willing to support an adaptive pricing scheme. Apricing engine visible in the customer or call center interface (forexample, SAP Internet Pricing & Configuration Engine offered by SAP AGand SAP America, Inc.) must be updated with a new pricing schemeconsistently and in regular intervals. In addition, a relationship mustbe defined between expected over/under-consumption fluctuations that mayoccur during a period and the price change. In general, a priceelasticity value must be known to calculate the relationship. An optimalpricing scheme can only be determined with an adaptive pricing enginethat takes into account price elasticities and cannibalization effectslearned from historical data. The historical data may be obtained from adata warehouse or other database, which may be developed by amanufacturer and may be industry specific. Based on pricing engineresults, an initial increase in price could be made in specificincremental price steps.

There are several additional case specific issues that should beconsidered in order for the goals of the dynamic price-driven model tobe achieved. The conditions include a determination of which componentsare considered for such a costing approach; how price changes aredetermined, and whether these price changes are based on informationstored in or determined from the data warehouse, such as pastconsumption patterns related to the respective product or to optionprices; the desired price stability and how often prices can be changed;and options that can be presented as prices in a configuration engine. Aheavily consumed component might contribute to several options and willthus affect more than one price.

Yet a further implementation of profit optimization ensures thatunprofitable products are not offered to customers. In particular, FIG.7 illustrates a profit optimization method 250 wherein component costsare considered during a profitable-to-promise check.

This technique considers real cost (at an sufficiently aggregated level)during the profitable-to-promise check to ensure that customer ordersare priced profitably in any supply chain state, and possibly also coverthe cost for product and location substitutions. Several different typesof product cost should be considered in profit determination when aproduct is ordered. These costs may include assembly costs, availablecomponents with known purchase cost, location substitutions (withtransportation cost added), substitute components having a higherpurchase cost, and any urgent missing supplies having an associated realcost of purchase. Thus, referring to FIG. 7, a product cost value isdetermined 252 based on one or more of the costs described above.

Once cost and price are determined, a contribution margin is determined254 and compared 256 to a desired target range for a particular customersegment. If the contribution margin is within the target range 258 thenthe product price is maintained 260. If the contribution margin is belowthe target range 262, a profitable-to-promise check is performed 264using a different profile to increase the contribution margin to thedesired level, which may include generating a lower product price byallowing only a certain amount or a certain cost for substitutions or nosubstitutions at all. If a less costly product configuration is possible268, then the product can be offered 270 at a lower price. If not, thenthe product price is increased 272 in order to maintain the requiredcontribution margin. If the product price is found to be above thetarget range 262, the product is being offered 266 to the customer at apremium price and no adjustments are necessary.

The above cost profiles must be updated regularly (in an ultimatelyideal case after each order). Activity-based costing information canhelp determining process dependent cost such as transportation orassembly cost.

The current SAP APO ATP solution offered by SAP AG and SAP America, Inc.allows limits to be placed on the number of product componentsubstitutions during an ATP check. If there is more than one plannedsubstitution, a user can select the relevant one. If more than onerelevant substitution are returned, then the user selects betweenoptions. Moreover, an ATP check could run with different profiles (nosubstitution limitation and a cap on the allowed substitution cost) toallow a choice between results.

In order for the goals of the component costs duringprofitable-to-promise check to be met, the current cost for components,assembly and transportation (transfer shipments as well as customerdelivery) must be maintained and available. In addition, restrictionsfor alternative profitable-to-promise checks must be defined andcustomer segments specific. Yet further, a suitable aggregation level ofproduction, sales, transportation and promotional cost must be defined.

There are several additional case-specific issues that should beconsidered. The conditions include the frequency of cost determinations;the performance and application load of the profitable-to-promiseimplementation as a complete process; and whether an update of rulesduring an ATP check seems inadequate, difficult and/or tooresource-consuming to perform.

FIG. 8 illustrates a profit optimization method 300 wherein a productprice is determined during the profitable-to-promise check. Theobjective is to improve the cost foundation of decision making byutilizing information about the current state of the supply chain whendetermining cost for fulfilling a specific request.

Referring to FIG. 8, a contribution margin for each order is determined302 based on product price and cost for components, production, sales,transportation, promotion, marketing and other factors. This costdetermination improves the objectivity for price negotiations by salespersonnel and helps to determine potential alternatives for fulfillingthe customer need that are less costly. Prices are calculated 304 fordifferent product configurations to ensure that product demand will bemet for preferred customer segments. Next, a selection of differentproduct configurations with different prices are presented 306 to eachcustomer based on that customer's product request. The customer thenchooses between different fulfillment options that each differ in theirconditions, such as the original product demand (no componentsubstitutions), lead time, price, or quality. The product is thenmanufactured 308 according to the customer's selection. Thus, a customermay choose to receive a product at a later time for a cheaper pricewherein no substitute components are used, or to receive the requestedproduct soon but at a higher price and with one or more substitutecomponents. This method therefore utilizes price and substitutioncapabilities to drive demand such that the preferred or most valuablecustomers can be served at any time.

In order to be able to present concurrent responses on a given customerrequest, a strategy must be in place that defines how the differentresponses are determined, and how many responses are generated for acustomer in any one of a plurality of situations. It is also importantto manage the volume of data presented in response to a customer(especially in an online environment) to guarantee that the systemperforms acceptably fast.

FIG. 9 illustrates a profit optimization method 350 wherein spot bundlepricing is offered to customers. The objective is to use bundlingstrategies and suggestive pricing to achieve defined sales goals.

Instead of just fulfilling the requested demand, the spot bundle pricingstrategy attempts to offer to the customer products or services thatrelate to the original demand and that can be delivered at a positiveprofit margin together with the original demand. Referring to FIG. 9,the profit margin amount is determined 352 for the original customerproduct order. Potential bundled product packages are identified 354that would contribute to overall profit. Next, a probability value iscalculated 356 that is equal to the likelihood that the customer wouldaccept a bundled product package at a special price (such as a discountprice). If the probability value is greater than a predetermined value358, then at least one bundled product package is offered 360 to thecustomer. If the probability is not greater than the predeterminedvalue, then a bundled product package is not offered 362 and the productis manufactured according to the original customer order. Theprobability value may be an arbitrary number, such as a 75%(seventy-five percent) chance based on historical customer data that abundled product package would be accepted, or may be based on afeasibility calculation, or may be based on any other basis identifiedby the manufacturer.

The spot bundle package and pricing technique opens up the opportunityfor a manufacturer to offer attractive products to customers in a mannerthat does not jeopardize the ability to fulfill other customer demands.Knowledge of the profit margin of the original order fulfillment, andknowledge about potential synergies of delivering more than theoriginally requested demand, may permit special discounts to be offereddepending on the price-elasticity of the additional offering.Information about the customer is also required to determine thewillingness to accept the additional offer at a price that optimallycontributes to the overall profit (in terms of expected acceptance andprofit margin). In addition, order-specific pricing of bundles may beimplemented according to a pricing and discount strategy (which may bederived from customer price elasticity functions).

The invention as described above can be implemented in digitalelectronic circuitry, or in computer hardware, firmware, software, or incombinations of them. Apparatus of the invention can be implemented in acomputer program product tangibly embodied in a machine-readable storagedevice for execution by a programmable processor executing a program ofinstructions to perform functions of the invention by operating on inputdata and generating output. The invention can be implementedadvantageously in one or more computer programs that are executable on aprogrammable system including at least one programmable processorcoupled to receive data and instructions from, and to transmit data andinstructions to, a data storage system, at least one input device, andat least one output device. Each computer program can be implemented ina high-level procedural or object-oriented programming language, or inassembly or machine language if desired; and in any case, the languagecan be a compiled or interpreted language. Suitable processors includeby way of example, both general and special purpose microprocessors.Generally, a processor will receive instructions and data from aread-only memory and/or a random access memory. Generally, a computerwill include one or more mass storage devices for storing data files;such devices may include magnetic disks, such as internal hard disks andremovable disks; magneto-optical disks; and optical disks. Storagedevices suitable for tangibly embodying computer program instructionsand data include all forms of non-volatile memory, including by way ofexample semiconductor memory devices, such as EPROM, EEPROM, and flashmemory devices; magnetic disks such as internal hard disks and removabledisks; magneto-optical disks; and CD-ROM disks. Any of the foregoing canbe supplemented by, or incorporated in, ASICs (application-specificintegrated circuits).

To provide for interaction with a user, the invention can be implementedon a computer system having a display device such as a monitor or LCDscreen for displaying information to the user and a keyboard and apointing device such as a mouse or a trackball by which the user canprovide input to the computer system. The computer system can beprogrammed to provide a graphical user interface through which computerprograms interact with users.

A number of embodiments of the invention have been described.Nevertheless, it will be understood that various modifications may bemade without departing from the spirit and scope of the invention. Forexample, several of the profit optimization implementations may becombined to provide further data for determining how best to allocateresources and price products to reach manufacturing goals. Accordingly,other embodiments are within the scope of the following claims.

1. A profit optimization method comprising: determining the initial costof components required to manufacture a product; dynamically determiningthe cost for substitution of at least one product component; dynamicallydetermining the location of at least one substitute component; andmanufacturing the product for the lowest cost based on the results ofthe cost of substitution and substitute component locationdeterminations.
 2. The method of claim 1 wherein at least one of thecost of substitute components and the component locations are determinedat or near the time of manufacture.
 3. An article comprising acomputer-readable medium that stores executable instructions for causinga computer system to: determine the initial cost of components requiredto manufacture a product; dynamically determine the cost forsubstitution of at least one product component; dynamically determinethe location of at least one substitute component; and generate anoutput indicating how to manufacture the product for the lowest costbased on the results of the cost of substitution and substitutecomponent location determinations.
 4. The article of claim 3, furthercomprising instructions for causing the computer to determine at leastone of the cost of substitute components and the component locations ator near the time of manufacture.
 5. A profit optimization systemcomprising: at least one database storage unit; and at least oneprocessor coupled to the storage unit, wherein the processor is operableto: determine the initial cost of components required to manufacture aproduct; dynamically determine the cost for substitution of at least oneproduct component; dynamically determine the location of at least onesubstitute component; and generate instructions to manufacture theproduct for the lowest cost based on the results of the cost ofsubstitution and substitute component location determinations.
 6. Aprofit optimization method comprising: defining a set of manufacturingrules based on customer segments; allocating critical product componentsaccording to preferred customer segments; allocating manufacturingcapacity according to the preferred customer segments; and manufacturingthe product.
 7. The method of claim 6 wherein the product components andmanufacturing capacity are allocated according to a feasibilityanalysis.
 8. An article comprising a computer-readable medium thatstores executable instructions for causing a computer system to: definea set of manufacturing rules based on customer segments; allocatecritical product components according to preferred customer segments;allocate manufacturing capacity according to the preferred customersegments; and generate instructions to manufacture the product.
 9. Thearticle of claim 8 further comprising instruction to cause the computersystem to allocate the product components and manufacturing capacityaccording to a feasibility analysis.
 10. A profit optimization systemcomprising: at least one database storage unit; and at least oneprocessor coupled to the storage unit, wherein the processor is operableto: define a set of manufacturing rules based on customer segments;allocate critical product components according to preferred customersegments; allocate manufacturing capacity according to the preferredcustomer segments; and generate instructions to manufacture the product.11. A profit optimization method comprising: monitoring product demandand allocation reservations for product components; comparing theproduct demand and component allocation reservations with demandforecasts at predetermined intervals; dynamically assigning componentallocations for preferred customer segments according to a comparison ofthe forecasted and monitored demand; and manufacturing the product forthe preferred customer segments before manufacturing the product forother customer segments.
 12. The method of claim 11 wherein preferredcustomer segments are determined according to predefined rules.
 13. Themethod of claim 11 wherein monitoring product demand and allocationreservations is conducted in regular intervals.
 14. The method of claim11 further comprising alerting a user when a component allocation ischanged.
 15. An article comprising a computer-readable medium thatstores executable instructions for causing a computer system to: monitorproduct demand and allocation reservations for product components;compare the product demand and component allocation reservations withdemand forecasts at predetermined intervals; dynamically assigncomponent allocations for preferred customer segments according to acomparison of the forecasted and monitored demand; and generateinstructions to manufacture the product for the preferred customersegments before manufacturing the product for other customer segments.16. The article of claim 15 further comprising instructions to cause thecomputer system to determine customer segments according to predefinedrules.
 17. The article of claim 15 further comprising instructions tocause the computer system to monitor product demand and allocationreservations in regular intervals. The article of claim 15 furthercomprising instructions to cause the computer system to alert a userwhen a component allocation is changed.
 18. A profit optimization systemcomprising: at least one database storage unit; and at least oneprocessor coupled to the storage unit, wherein the processor is operableto: monitor product demand and allocation reservations for productcomponents; compare the product demand and component allocationreservations with demand forecasts at predetermined intervals;dynamically assign component allocations for preferred customer segmentsaccording to a comparison of the forecasted and monitored demand; andgenerate instructions to manufacture the product for the preferredcustomer segments before manufacturing the product for other customersegments.
 19. A profit optimization method comprising: dynamicallymonitoring product demand and component allocation reservations;comparing the monitored product demand and component allocationreservations to a forecasted demand; offering customers at least oneless expensive substitute component of the product in place of arequested component; and manufacturing the product for a first price ifthe substitute component is accepted, or manufacturing the product for asecond, higher price if the substitute component is not accepted. 20.The method of claim 19, wherein price changes are imposed in fixedincrements.
 21. The method of claim 19 wherein price changes aredetermined according to price sensitivity functions.
 22. The method ofclaim 19 wherein at least one customer offer includes an optimal pricebased on a price elasticity value and cannibalization effects.
 23. Anarticle comprising a computer-readable medium that stores executableinstructions for causing a computer system to: dynamically monitorproduct demand and component allocation reservations; compare themonitored product demand and component allocation reservations to aforecasted demand; generate a customer offer including at least one lessexpensive substitute component of the product in place of a requestedcomponent; and generate instructions to manufacture the product for afirst price if the substitute component is accepted, or to manufacturethe product for a second, higher price if the substitute component isnot accepted.
 24. The article of claim 23 further comprisinginstructions to impose price changes in fixed increments.
 25. Thearticle of claim 23 further comprising instructions to determine pricechanges according to price sensitivity functions.
 26. The article ofclaim 23 further comprising instructions to wherein offer an optimalprice based on a price elasticity value and cannibalization effects. 27.A profit optimization system comprising: at least one database storageunit; and at least one processor coupled to the storage unit, whereinthe processor is operable to: dynamically monitor product demand andcomponent allocation reservations; compare the monitored product demandand component allocation reservations to a forecasted demand; generate acustomer offer including at least one less expensive substitutecomponent of the product in place of a requested component; and generateinstructions to manufacture the product for a first price if thesubstitute component is accepted, or to manufacture the product for asecond, higher price if the substitute component is not accepted.
 28. Aprofit optimization method comprising: determining a productmanufacturing cost value; comparing the current price of the product tothe cost value and calculating a contribution margin; comparing thecontribution margin to a desired target range for a particular customersegment; and adjusting at least one of the product price and a productconfiguration if the contribution margin is outside the target range.29. The method of claim 28 wherein the product manufacturing cost valueincludes at least one of an assembly cost, available components withknown purchase cost, location substitution cost, substitute componentcosts, and urgent missing supplies cost.
 30. The method of claim 28further comprising increasing the product price if the contributionmargin is below the target range.
 31. The method of claim 28 furthercomprising updating the product manufacturing cost value on a regularbasis.
 32. An article comprising a computer-readable medium that storesexecutable instructions for causing a computer system to: determine aproduct manufacturing cost value; compare the current price of theproduct to the cost value and calculating a contribution margin; comparethe contribution margin to a desired target range for a particularcustomer segment; and adjust at least one of the product price and aproduct configuration if the contribution margin is outside the targetrange.
 33. The article of claim 32 further comprising instructions toinclude at least one of an assembly cost, available components withknown purchase cost, location substitution cost, substitute componentcosts, and urgent missing supplies cost in the product manufacturingcost value.
 34. The article of claim 32 further comprising instructionsto increase the product price if the contribution margin is below thetarget range.
 35. The article of claim 32 further comprisinginstructions to update the product manufacturing cost value on a regularbasis.
 36. A profit optimization system comprising: at least onedatabase storage unit; and at least one processor coupled to the storageunit, wherein the processor is operable to: determine a productmanufacturing cost value; compare the current price of the product tothe cost value and calculating a contribution margin; compare thecontribution margin to a desired target range for a particular customersegment; and adjust at least one of the product price and a productconfiguration if the contribution margin is outside the target range.37. A profit optimization method comprising: determining a contributionmargin for each product order; calculating prices for different productconfigurations such that product demand will be met for preferredcustomer segments; presenting different product configurations at thecalculated prices to customers; and manufacturing the products selectedby the customers.
 38. The method of claim 37 wherein the differentproduct configurations and prices include at least one of the originalproduct configuration, a plurality of different component substitutions,and lead time considerations.
 39. An article comprising acomputer-readable medium that stores executable instructions for causinga computer system to: determine a contribution margin for each productorder; calculate prices for different product configurations such thatproduct demand will be met for preferred customer segments; presentdifferent product configurations at the calculated prices to customers;and manufacture the products selected by the customers.
 40. The articleof claim 39 further comprising instructions to generate product pricesfor at least one of the original product configuration, a plurality ofdifferent component substitutions, and lead time considerations.
 41. Aprofit optimization system comprising: at least one database storageunit; and at least one processor coupled to the storage unit, whereinthe processor is operable to: determine a contribution margin for eachproduct order; calculate prices for different product configurationssuch that product demand will be met for preferred customer segments;present different product configurations at the calculated prices tocustomers; and manufacture the products selected by the customers.
 42. Amethod for optimizing profit comprising: determining the margin amountof an original customer product order; identifying at least onepotential bundled product package containing more than the requestedproduct order that would contribute to overall profits; generating aprobability value equal to the likelihood that the customer would accepta bundled product package at a special price; and offering at least onebundled product package at the special price to the customer if theprobability value is greater than a predetermined value.
 43. The methodof claim 42 wherein the special price is a discount price that isdetermined according to a pricing and discount strategy.
 44. The methodof claim 43 wherein the pricing and discount strategy includes derivingat least a portion of an order-specific price of a product bundleoffering using customer price elasticity functions.
 45. The method ofclaim 42 further comprising offering special discount prices for atleast one specific product bundle depending on the price elasticity ofthe additional product offering.
 46. The method of claim 42 wherein atleast one potential bundled product package would optimally contributeto overall profits.
 47. An article comprising a computer-readable mediumthat stores executable instructions for causing a computer system to:determine the margin amount of an original customer product order;identify at least one potential bundled product package containing morethan the requested product order that would contribute to overallprofits; generate a probability value equal to the likelihood that thecustomer would accept a bundled product package at a special price; andoffer at least one bundled product package at the special price to thecustomer if the probability value is greater than a predetermined value.48. The article of claim 47 further comprising instructions to determinethe special price according to a pricing and discount strategy.
 49. Thearticle of claim 48 wherein instructions to determine the pricing anddiscount strategy include instructions for deriving at least a portionof an order-specific price of a product bundle offering using customerprice elasticity functions.
 50. The article of claim 47 furthercomprising instructions to offer special discount prices for at leastone specific product bundle depending on the price elasticity of theadditional product offering.
 51. The article of claim 47 furthercomprising instructions to ensure that at least one potential bundledproduct package optimally contributes to overall profits.
 52. A profitoptimization system comprising: at least one database storage unit; andat least one processor coupled to the storage unit, wherein theprocessor is operable to: determine the margin amount of an originalcustomer product order; identify at least one potential bundled productpackage containing more than the requested product order that wouldcontribute to overall profits; generate a probability value equal to thelikelihood that the customer would accept a bundled product package at aspecial price; and offer at least one bundled product package at thespecial price to the customer if the probability value is greater than apredetermined value.